South Africa: Controversy And Consultation On Proposed Carbon Tax

Emitting around 500 million metric tonnes of greenhouse gases in 2010, South Africa is among the top 20 polluters in the world. The majority of the country’s energy is produced by burning fossil fuels. With the country in the midst of a carbon boom, the 40 largest South African companies are responsible for 20 per cent of its carbon output. Five key sectors accounted for 97 percent of total emissions from the top 40 companies: Basic Resources, Oil & Gas, Food & Beverage, Industrial Goods & Services and Telecommunications.

Now the government is looking to crack down with a new carbon tax, suggesting that the government believes that taxing emissions is crucial to preventing South Africa from being harmed by potentially catastrophic changes in its climate. Yet concerns remain that the tax could have a harmful effect on South African industry, delaying the implementation of the bill.

The proposal is for a tax rate of 75 rand ($9) per tonne of carbon dioxide emitted, which will increase over time, which is considered to be “feasible and appropriate to achieve the desired behavioural changes and emission reduction targets”. Research group Trucost have claimed that carbon costs could amount to almost $974 million for the top 40 companies, 0.2 percent of revenue or 1 percent of earnings before interest or taxation. At a higher future carbon price of 200 rand ($23.91), direct carbon costs could amount to more than $2.5 billion globally. This could equate to 0.5 percent of revenue on average across all 40 companies, or 2.7 percent of earnings.

This will have been of concern to the companies affected, with the South African treasury looking to allay these fears by proposing a 60 percent tax-free threshold on emissions for all sectors, including electricity, petroleum, iron, steel and aluminium. This levy would increase every year until 2020, will most sectors would also be able to claim additional relief. Businesses remain unimpressed, however, and the government is now going through a consultation process on the proposals. “We have had a number of engagements with different stakeholders and will continue to have engagements,” said Finance Minister Pravin Gordhan. “There is no decision yet on the carbon tax. We are listening very carefully.”

The concerns of businesses and some experts are that companies may be held back financially by the taxation, which could form a barrier to industrial and commercial progress. South Africa is very dependent on fossil fuels for energy, meaning reductions would be difficult to push through. Companies whose operations are carbon-intensive may be rendered less competitive against lower carbon sector peers.

Yet some believe the taxation is necessary, both to benefit the environment but also the businesses themselves.

“Protecting energy and carbon-intensive industries to the extent that business-as-usual (BAU) greenhouse gas emissions continue could weaken basic ministerial climate negotiations and exacerbate climate change impacts such as changes in water availability, increased floods and droughts, biodiversity loss and crop losses or lower agricultural production in South Africa,” said Liesel Van Ast, Research Editor at Trucost. Maintaining emissions at their current level could result in lower productivity.

Companies looking to provide low-carbon alternatives could also benefit, according to Van Ast. “They can start by measuring energy use and carbon emissions from operations, suppliers and products to identify the main sources of carbon risk,” he said. “This can help identify the most cost-effective opportunities to reduce emissions, inform mitigation plans, and set baselines for targets to reduce emissions. Companies that are able to demonstrate sound carbon monitoring and management are likely to be better positioned to maintain market share and profitability during the shift to a low-carbon economy.”